Energy IG raises concern about stimulus spending oversight

For federal agencies, many of which are overwhelmed by the typical reporting and accountability requirements associated with managing huge, complex programs, the added demand of quickly distributing billions of dollars in stimulus money required by the 2009 American Recovery and Reinvestment Act creates serious challenges.

A new report by Energy Department Inspector General Gregory Friedman shows that not only are stimulus funds vulnerable to waste and abuse, but the demands they incur on department resources threaten to swamp existing missions.

The guidance from the White House Office of Management and Budget on administering the funds poses daunting challenges for even the most well-run federal program offices, Friedman wrote. For Energy and other agencies with histories of contract and financial management problems, the stimulus funds present potentially overwhelming difficulties.

The nearly $40 billion in supplemental funding appropriated to Energy under the Recovery Act dwarfs the department's annual budget of $27 billion. The infusion of money and the unprecedented transparency and reporting requirements associated with it unquestionably will strain the department's resources and affect its sizable portfolio of missions and activities, Friedman wrote.

"This is complicated by the fact that, in many respects, the Recovery Act requirements represent a fundamental transformation of the department's mission. If these challenges are to be met successfully, all levels of the department's structure and its many constituents, including the existing contractor community; the national laboratory system; state and local governments; community action groups and literally thousands of other contract, grant, loan and cooperative agreement recipients throughout the nation will have to strengthen existing or design new controls to safeguard Recovery Act funds," he wrote.

Prior audits have shown the department has a history of not being able to reconcile costs reported in its financial systems with expenditures recorded in project documentation; Energy has funded projects that were not economically viable and in some cases failed to recognize inappropriate expenditures (expansion of a golf course, for example); and cost overruns, schedule delays and unrealized program objectives have plagued a number of department contracts.

Such recurring problems have kept Energy's contract management activities on the Government Accountability Office's high-risk list of programs vulnerable to waste, fraud and abuse since 1990 and bode ill for the department's ability to manage stimulus funds, which must be tracked separately from other appropriations, according to OMB's guidance.

The IG attributed many problems to staffing shortages. For example, program managers in one office were responsible, on average, for overseeing 50 programs each -- a staggering workload that precluded the type of oversight necessary to ensure funds were spent appropriately and program objectives were being met. Additionally, the financial management staff overseeing loan guarantees -- which have ballooned to $127 billion with stimulus funding -- is woefully short-handed.

Based on preliminary meetings with managers, the IG noted that department officials had begun to identify risks associated with dispensing Recovery Act funds and to develop strategies to mitigate those vulnerabilities. Energy also planned to provide stimulus fund recipients with clear guidance regarding their responsibilities for transparency and accountability, the IG said.

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